How Do I Tap an IRA to Avoid Home Foreclosure?

Generally, investors reserve Individual Retirement Account (IRA) money for retirement. Traditional and Roth IRAs each offer tax benefits as long as you wait, in most cases, until you are 59 1/2 years of age before taking a withdrawal. There are times, however, when life gets in the way of a sound retirement investment strategy. If you are facing foreclosure, you might consider using money from your IRA to avoid losing your home.

1

Withdraw money from your IRA. If you are at least 59 1/2 years old, the IRS will not penalize you. The IRS does not tax Roth IRA distributions; on traditional IRA withdrawals, you will pay income tax on the money you withdraw at your regular rate.

2

Set aside 10 percent of the amount you withdrew if you are under age 59 1/2 when you take your IRA withdrawal. For both Roth and traditional accounts, the IRS levies a 10-percent tax penalty in addition to applicable regular income tax on distributions. Your IRA custodian will automatically withhold the percentage of your withdrawal that you indicate on a form you fill out to request it. You can also opt to not pay taxes at the time of the distribution; however, you will be responsible for them come tax time. IRA custodians report all IRA distributions to the IRS.

3

Use the money you withdrew to bring your mortgage current or reach another type of agreement with your lender. While individual circumstances vary, generally if you have fallen behind on your mortgage, your lender should refrain from foreclosure proceedings if you satisfy all past due amounts, including applicable legal fees associated with the foreclosure process. As HUD notes, attorney fees typically start to accrue after you miss your fourth mortgage payment.

Tip

You always have the option of reinvesting the money you withdrew back into your IRA when your financial situation improves and allows you to do so. This will only serve to beef up your account balance. Once you take your distribution, you must pay taxes on it, unless you return all or part of it to a qualified plan, such as an IRA or workplace retirement plan, within 60 days of receiving the withdrawal. The IRS will not tax amounts returned within 60 days.

About the Author

As a writer since 2002, Rocco Pendola has published numerous academic and popular articles in addition to working as a freelance grant writer and researcher. His work has appeared on SFGate and Planetizen and in the journals "Environment & Behavior" and "Health and Place." Pendola has a Bachelor of Arts in urban studies from San Francisco State University.